The Indian Railways (IR) is an extensive and vital network with tracks nationwide. Established under the Ministry of Railways in 1853, it boasts the fourth-largest railway system in the world, with a massive track length exceeding 128,000 kilometers. This intricate web connects cities, towns, and villages and employs more than 1.2 million people. The statutory body offers express trains, passenger trains, and suburban services. With its role in freight transport, IR services diverse industries and fuels the nation’s economy. It is a transportation network and a lifeline connecting people and businesses. Its economic might has made Indian Railway Stocks popular in the country.
IR has 5 Public Sector Undertakings (PSUs) and subsidiaries where investors buy the stocks. However, it’s advisable to know about the returns and risks of investing in Indian railway stocks with the help of a SEBI-registered investment advisory.
This blog post delves into details about the IR’s subsidiaries and PSUs and the pros and cons of investing in these stocks.
Indian Railway Catering & Tourism Corporation (IRCTC): This tourism and catering frontrunner is the face of Indian rail travel. Its stock soared over 120% in 2023 due to increased passenger traffic and digital initiatives.
Titagarh Wagons Ltd.: The wagon manufacturer witnessed a 170% surge in its stock price, driven by rising freight demand and government investments in infrastructure.
Rail Vikas Nigam Ltd. (RVNL): This state-owned construction firm saw its stock climb over 160%, benefiting from its role in developing dedicated freight corridors and railway electrification projects.
Container Corporation of India (CONCOR): The leading container logistics player saw a 122% return in 2023. As India’s trade intensifies, CONCOR’s dominance in container movement secured its value proposition.
Indian Railway Finance Corporation (IRFC): This financing arm of the railways delivered a 50% return, benefiting from increased infrastructure spending.
Pros of Indian Railway Stocks
The following are the plus points of IR stocks:
Indian Railway stocks are generally long-term investment options. IR and its stocks have shown stable growth. Although cyclical, the industry has had a consistent track record of growth.
The IR enjoys a near-monopoly position in the land transportation sector, with over 60% market share in passenger traffic and 70% in freight. This dominant position translates to stable and predictable revenue streams.
As a state-owned enterprise, IR receives significant support from the government through subsidies, infrastructure investments, and policy decisions. This backing provides a safety net and mitigates economic downturns.
India’s booming economy and growing population increase passenger and freight transportation demand. It translates to a potential for sustained growth in the railway sector, benefiting investors.
Investing in railway stocks offers diversification benefits, as the sector is not directly correlated with the performance of other industries. It can help mitigate risk in a volatile market.
Compared to other infrastructure sectors, IR stocks are usually undervalued, offering a potential for capital appreciation in the long term.
Cons of Investing in IR Stocks
A few downsides to IR stocks may make it a risky proposition to invest in.
Bureaucracy and Inefficiency
The Indian Railways grapples with bureaucratic hurdles and operational inefficiencies, leading to delays, cost overruns, and lower profitability. It can impact investor confidence and returns.
While the Indian Railways holds a dominant position, private players are gradually entering the market, particularly in high-speed rail and dedicated freight corridors. It could reduce market share and profitability in the long term.
As a government-owned entity, the Indian Railways is susceptible to political influence, which can lead to policy decisions prioritizing social welfare over commercial viability, impacting investor returns.
The aging infrastructure and maintenance needs of the Indian Railways are immense, requiring significant investments. It can put pressure on finances and limit resources for expansion and modernization.
Global Economic Downturns
The IR is susceptible to global economic downturns, leading to reduced passenger and freight transportation demand impacting revenue and profitability.
With their history, size, and importance, Indian Railway stocks have presented an opportunity for investors to consider. However, it’s a mixed bag of opportunities and challenges. IR has pros, such as extensive reach and a crucial role in the nation’s economy. The monopoly advantage, government support, growth potential, diversification benefits, and valuation advantage contribute to the positive side.
However, investors must tread cautiously due to bureaucratic inefficiencies, emerging competition, political influences, infrastructure challenges, and susceptibility to global economic downturns. Before investing in this dynamic sector, one must thoroughly research and consult with financial experts.